Apr 052015

One of the great business stories of today is how Microsoft is reinventing itself in the face of a totally changed industry. With the company turning 40, The Economist has a look at the business in its middle age.

The Economist concludes CEO Satya Nadella is making the important changes to the business that founder Bill Gates couldn’t make because he was too protective of the company’s core products and that Steve Ballmer, Nadella’s predecessor, wasn’t interested in making as he sweated the existing assets.

As this blog has pointed out before, The Economist notes the profit margins of the cloud and mobile services Nadella is focusing on are far slimmer than those Microsoft are used to from their server and desktop products.

Those fat profit margins were the reason why Nadella’s predecessors had little reason to refocus the company but towards the end of Ballmer’s leadership it was clear Microsoft couldn’t resist the shift for much longer.

Microsoft’s dilemma was clear to the stock market as well with The Economist having a chart showing the relative performance of IBM, Microsoft and Apple over the last 35 years.


When Microsoft peaked in the late 1990s, the company was worth over twenty percent of the total tech sector’s valuation – today Apple has stolen most of that value.

A particularly jarring from The Economist’s graph is just how much IBM dominated the tech sector a generation ago and its steep decline following the introduction of desktop computers.

IBM’s decline in its dotage is exactly the fate Nadella is trying to avoid for Microsoft, with companies like Google, Apple and Amazon as competitors he has a tough task ahead of him.

Mar 242015
Facebook founder Mark Zuckerberg list the social media service stock

Do economies and businesses need to be at the cutting edge of tech or is staying behind the early adopters the key to get the most out of technology?

“Everybody has Facebook envy,” says Oracle’s Neil Mendelson, the company’s Vice President for Big Data, about business life in Silicon Valley.

Mendelson was talking about how the Silicon Valley business environment is a high pressure bubble where the focus on shipping products is different from the needs of users outside the tech sector.

“The farther out you go from Silicon Valley the more people fundamentally understand the value is in getting something out of it,” says Mendelson who was speaking at an executive lunch in Sydney earlier today.

“Being a late follower has an advantage because companies aren’t going to get fired up about this Facebook envy trying to assemble a solution but rather they can get something out of the cloud that will deliver value.”

The Minitel problem

An example of being too far ahead could be Minitel, a text based network operating across France between 1982 and 2012.

Minitel was a visionary project intended to deliver services similar to the Internet through a dedicated terminal, however the open nature of the net made the French service less than attractive and eventually France Telecom wound the service up in 2012 as user interest evaporated.

How much the French bet on Minitel held the nation’s digital economy back is open to question, the World Economic Forum lists France as 25th in the world in its 2014 Networked Readiness Index however the gap between most of the top nations is quite close.

Falling off the bleeding edge

The idea that the best return on a tech investment is by being behind the ‘bleeding edge’ isn’t new, for years the advice from serious computer experts was to never buy a Microsoft product until version three came out however there is a risk that the early adopters might get an early advantage over the slow movers.

Another risk is missing out altogether; as Oracle’s Australian manager Tim Endrick told the room, “our experience is organisations are doing two things; they are either managing disruption and/or they are leveraging their structures to innovate. Those who are sitting on the back step doing nothing are in serious trouble.”

So while there are risks with being too an early an adopter of new technology, it’s important to be aware of the trends and tools that are changing business.

With the pace of change in both technology and industry accelerating, it may be that staying too far behind the cutting edge risk falling off altogether. Maybe it’s worth being envious of Facebook.

Mar 182015

A few days ago we covered the Great Transition research paper by Colonial First State Funds Management’s James White and Stephen Halmarick and followed up with a piece in Business Spectator looking at the ramifications for the Australian economy.

One of Halmarick and White’s assertions is that brands are dead as consumers in emerging economies don’t care about corporate names and in developed nations people have better information about local businesses.

The former argument seems flawed from the beginning; Apple for example is making huge inroads in China while local manufacturers like Lenovo, Huawei, Great Wall and Haier are all working hard to establish their names in international markets.

In developed markets, White and Halmarick’s views have more basis with brand names not having the cachet they once did now consumers have a global platform to voice complaints and find alternatives.

A good example of brands that are struggling are companies like Microsoft and McDonalds, although in the case of both companies this could be more because of a shift in the marketplace rather than better informed consumers.

However brands are surviving as they lift their game and adapt to changed marketplaces, in fact its possible to argue that today’s consumers are more responsive to brand names than ever in the past.

A good example of this is again Apple which has more fans than ever before. Apple are also a good example of how big corporations can invest huge amounts into new technologies and products to give them an advantage over upstarts.

We should also remember that brands as we currently know them are largely a Twentieth Century phenomenon born out of the development of mass media communications and many of today’s household names came into the culture thanks to television in the 1950s and 60s.

So as creatures of last century’s media it’s not surprising that brands are having to evolve to a changed world, some of them will thrive and grow while others will shrivel away.

It’s safe to say though that the concept of brands isn’t dead, although many of the names we know today may not exist by the end of the decade.

Mar 172015

Ahead of its launch the Apple watch has been criticised for its price and upmarket focus but the product shows what it costs to manufacture high quality goods along with the limitations of both 3D printing and crowdfunding.

In its Watch Craftsmanship videos Apple shows off some of the workmanship that goes into manufacturing the device and the Atomic Delights blog has a deep look at the processes and the design decisions behind the company’s choice of techniques.

What Apple’s series shows is that making top end devices is capital intensive and very, very hard. It also puts lie to the idea that raising a few thousand, or even million, dollars on Kickstarter will get a luxury item to market.

Greg Koenigin, the author of the Atomic Delights blog, gushes about Apple’s attention to detail and high quality manufacturing.

I see these videos and I see a process that could only have been created by a team looking to execute on a level far beyond what was necessary or what will be noticed. This isn’t a supply chain, it is a ritual Apple is performing to bring themselves up to the standards necessary to compete against companies with centuries of experience.

It’s clear Apple isn’t stepping back or making any compromises in making its mark on the watch industry, even though the entire global market for timepieces is less than one quarter’s income from the iPhone.

At the other end of the market the 3D printing revolution continues with Feetz raising $3 million for its customised shoemaking operation.

While Feetz is an impressive and quirky business with great promise it shows the rough-and-ready face of the makers’ movement and the businesses relying on 3D printing services, it’s a world away from the Apple Watch.

While both crowdfunding and 3D printing are going to have a massive effect on business and manufacturing, the truth is that other manufacturing methods are still going to be used by deep pocketed companies. Nothing is ever as simple as we think.

Mar 132015

A few days ago we discussed how 4k video cameras are going to change the sports broadcasting industry.

Yesterday executives from modular data center supplier VCE held a media lunch where they discussed some of their industrial applications. One of the areas they discussed was the monitoring of power stations with large resolution cameras.

The 4k cameras are trained on machine rooms with software watching for irregular conditions such as excessive vibrations, leaks or smoke. Should something out of the ordinary be detected, warnings can be triggered and potentially affected equipment spun down.

With the 4k resolution the cameras are able to watch large areas and like the sports coverage can zoom in for a detailed view of an affected area.

The use of 4k video cameras shows how the internet of things won’t just be about the data gathered from smart devices but also matching the information coming from IoT equipment with that of other environmental factors.

For companies like VCE these sort of applications are an opportunity as they need large amounts of data storage and processing power in local centres.

In many respects these small scale data centers are a large scale example of the fog computing being touted by companies like Cisco where most of the operational tasks are carried out by local equipment with only reports and exceptions being transmitted to the cloud.

This sort of application also shows the demands different industries are going to have for local data processing and storage with the VCE executives suggesting hospitals, mines and sports stadiums are also going to need these facilities.

For VCE – a troubled joint venture between Cisco, storage company EMC and computer virtualisation firm VM Ware – these are the sort of clients they are hoping to find to keep their business running.

Regardless of VCE’s prospects, the need for equipment to manage the data being collected by devices on the Internet of Things and 4k video is going to grow. That could give us one of the clues of where the jobs of the future are going to come from.

Mar 092015
PayPal have a number of strategies for mobile and online payments

Banking has always been a data driven business, understanding borrowers and the risks they present is one of the essential skills in making money from lending.

The new wave of payment startups present a new way for lenders to analyse risks; with real time data aggregated across businesses and regions, lenders can quickly decide wether a borrower is likely to able to pay the money back with the conditions asked for.

Payments company Square in its latest pivot has partnered with Victory Park Capital and claims to have extended more than $100 million in capital to more than 20,000 merchants writes the New York Times.

Like other payment companies that have entered this market, Square uses their own deep understanding of their customers’ incomes to be able to make a data based decision on the creditworthiness of applicants.

Square also offers ancillary data-driven products created for small businesses. The new instant deposit product, which is still in testing and will be fully available in the spring, will give businesses faster access to money they put into a debit account. And the company’s new charge-back protection service will cover some disputes between consumers and merchants.

Those products also rely on data that Square has collected. They will be available only to small businesses that have a solid financial track record, based on a history of accepting payments with Square.

Square is by no means the first business to do this, last year we wrote of PayPal’s move into small business lending and Point of Sale hardware manufacturer Verifone retreated from the market two years ago calling it ‘fundamentally unprofitable.’

The competition in the space and the fact assessing financial risks isn’t exactly a core competence of Silicon Valley start ups indicate Square’s and other companies may find small business lending a tough business as well.

Despite that, small business lending is a field that is overdue for disruption. With companies like Apple, Google and Amazon all offering payment services, the logical expansion is into evaluating risk and profit.

It may not be Square, Verifone or PayPal who ultimately redefines the sector, but it will be one of today’s tech businesses that does.

Mar 052015

Pebble have achieved the biggest Kickstarter fund raising in the service’s history with a $14 million fundraising for its latest smartwatch.

Over at competing crowdfunding service Indiegogo Flow Hives, a Tasmanian beekeeping invention, has raised nearly five million dollars for its innovative beehives that put honey on tap.

Crowdfunding is fast becoming the way for smaller manufacturers to secure preorders from the market and secure scarce capital for the business.

Pebble and Flow follow the success of Ninja Blocks who have had two successful crowdfunding ventures and their CEO Daniel Friedman spoke to Decoding The New Economy last year about raising money for hardware projects.

Not every hardware crowdfunding project works out well though as Mark Pesce described in relating his experience with the failed Moore’s Cloud fundraising. Mark said he’d “rather eat a bullet” than engage in another crowdsourcing campaign given the pressures upon manufacturers to deliver.

As Moore’s Cloud shows there are risks and complexities in looking to the crowd to raise project capital. Even a successful campaign faces potential problems in completing the project and delivering a product that meets the expectations of those who’ve contributed.

Crowdfunding has opened a new way for artists and entrepreneurs to raise funds for their projects, like all tools though it does have it’s risks and isn’t for everyone.